New Delhi: Companies in the country can now insure themselves against revenue loss stemming from their failure to generate carbon credits they planned to sell to companies in the West.
Carbon discredits: Smoke stacks at a Chinese factory. Qilai Shen / Bloomberg
While HDFC Ergo General Insurance Co. Ltd is in talks with project developers, carbon traders and banks to sell its product, called the Kyoto Multi Risk Policy, Aon Global Insurance Brokers Pvt. Ltd, the Indian arm of US-based insurance broker Aon Corp., has approached power projects and cement companies to sell a similar product.
Carbon credits are certificates guaranteeing reductions in emission levels. Most developed countries, except the US, have ratified the Kyoto Protocol, which aims to reduce carbon emissions below 1990 levels by 2012 in these nations. Companies in the West often do this by paying for such reduction efforts in developing countries such as India. These credits are traded like stocks in the international market.
“It (Insurance Regulatory Authority of India) still hasn’t raised any objections. So, we are actively marketing the product,” said an HDFC official, who didn’t wish to be named. HDFC Ergo General Insurance is a venture between mortgage lender HDFC Ltd and Ergo International AG, a group company of Munich Re Group, the world’s second biggest re-insurance firm.
Aon’s executive vice-president Saurabh Verma confirmed that his company would sell the product, which will cover companies against any loss of revenue that they plan to earn by selling carbon credits. He declined to name the product or its underwriter.
Both HDFC and Aon declined to name companies or projects they are holding discussions with.
“Carbon credits are traded in five-six exchanges around the world. Depending on the type of credit, we quote a price per credit,” the HDFC official said. Munich Re sells a similar product internationally.
Traders say it will be a while before these products become popular. “The carbon credit market has a lot of uncertainty, and the whole concept of trading emissions is relatively new to India,” said Ram Babu, managing director, CantorCo2e Asia, a trader in carbon credits. “I am yet to come across developers who are interested in buying them.”
According to data released by consulting firm ICF International, the estimated value of global carbon markets at least doubled last year, reaching $64 billion (Rs3.16 trillion) from $34 billion in 2006. While Indian carbon credits were only 6% of total transactions last year, they are expected to grow, with pipeline projects expected to grow by 40% to at least 1,100 projects in 2008.
Edwin Aalders, director at International Emissions Trading Assocication, an organization of carbon exchanges and traders, said even European companies that are the main buyers of carbon credits haven’t taken to such insurance in a big way.
“Most of them buy credits off the exchanges, which only deal in verified credits, so there are much fewer buyers entering into forward contracts for credits in India,” Aalders said.
“But once the markets expand beyond 2012, I expect such policies to get more popular.”